After several years of retrenchment following the post-pandemic investment peak, the UK’s venture capital market is showing clear signs of revival. New figures from UKTN show venture capital investment rose 35 per cent in 2025 to $23.6bn, marking the first year of growth in four years and a notable shift in investor sentiment.

The rebound reflects more than cyclical recovery. It coincides with a record number of new technology businesses being formed and a more supportive policy environment for high-growth companies, reinforcing the UK’s position as one of the world’s leading startup ecosystems.

Data from Beauhurst and RSM UK shows that 56,615 new tech companies were incorporated in 2025, a 17 per cent increase on the previous year and almost 50 per cent higher than five years ago. While London remains the dominant hub, growth is increasingly regional, with tech incorporations rising sharply in Wales and the West Midlands, pointing to a more decentralised digital economy.

The funding recovery has been driven in part by the return of large late-stage rounds. Research from HSBC Innovation Banking shows that 36 “megarounds” of more than $100m closed in 2025, helping to address a longstanding weakness in the UK market: the ability to fund companies through to global scale without forcing them overseas for capital.

Encouragingly for early-stage investors, the number of companies securing their first institutional funding round also rose, suggesting renewed appetite for backing new founders. While investors remain selective, average cheque sizes have increased as capital concentrates around higher-conviction opportunities.

Artificial intelligence was the standout sector, attracting $7.9bn — almost a third of all UK venture funding. Investment has flowed not only into foundation models and infrastructure, but into applied AI businesses focused on automation, enterprise software and revenue-generating use cases. That breadth has helped cement the UK’s position as Europe’s leading AI market.

Policy has also played a role in restoring momentum. Changes announced in the Autumn Budget to expand tax-efficient investment schemes are expected to ease funding bottlenecks as companies scale, while signalling continued government support for high-growth innovation. The reforms, due to take effect from April 2026, were widely viewed as a vote of confidence in the startup sector during 2025.

Together, these trends are creating what some investors describe as a “sweet spot” for UK venture capital: abundant early-stage dealflow, improved late-stage funding pathways and a stabilising macroeconomic backdrop. With inflation easing and interest rates becoming more predictable, the cost-of-capital concerns that weighed heavily on investment in 2023 and 2024 have begun to recede.

As 2026 unfolds, the data suggests the UK tech sector has emerged from the downturn leaner, broader and better capitalised — offering investors a market once again geared towards growth rather than survival.